ETFs No-Fee Business Account Seeks to Reverse the Market
The first national bank the new First Business Zero account, with no monthly fees, certainly got competitors to sit down and take notice. It’s not a segment that has seen a lot of innovation, and business banking services are generally quite expensive.
It’s not uncommon for business accounts to have monthly fees of just under R100 for basic offerings, and banks have offered bundled options where these fees are considerably higher. Prior to November, ETF’s most profitable option, its Gold Corporate Account, meant a monthly fee of R80 or one of two packages at R265 or R390.
As a result, many sole proprietors simply use their existing personal bank account (or a second account) to run their business. Think of the bakkie builders, plumbers and the like. It is precisely this segment – companies with sales of less than Rand 5 million / year – that FNB is targeting with this new account.
First Business Zero pushes the first digital ETF proposition into the trading space. The account offers unlimited point-of-sale purchases (swipes), free payments via QR code in the FNB app (like Zapper / Snapscan) and FNB Connect Sim card with a modest amount of bundled data, voice minutes and of SMS. The per-transaction fees are in line with those charged on Gold and Platinum accounts, but these accounts typically feature a number of free bundled transactions.
The name of this account conjures up an obvious comparison to Bank Zero – also targeting the small and medium business space – and which launches commercially next year.
The FNB’s move can be seen as defensive, with increased competition in the banking industry. It’s not just Bank Zero. Capitec’s acquisition of Mercantile Bank will see a concerted push from the country’s largest bank in terms of number of clients in the corporate segment. But Capitec has indicated that it will immediately invest in digital and IT over the next two years to enable growth. It is therefore likely that it will take Capitec at least a year before starting to offer breakthrough products in this segment.
However, this FNB decision is not just about new entrants. Existing competitors, especially Capitec, are popular choices for sole proprietors, although these accounts aren’t explicitly aimed at entrepreneurs (or aren’t really geared towards that goal).
Additionally, it will allow FNB to target existing clients who use personal bank accounts to run their businesses. The transfer of these sole owners to professional accounts will allow better segmentation of its base and allow FNB to sell other products, in particular credit, as well as its value-added services such as payroll, invoicing and accounting, all integrated into its online banking platform.
FNB is the undisputed leader in cross-selling in the personal accounts space and this is a continuation of this strategy. In its fiscal 2019 results, FirstRand notably highlighted its success in âtargeted cross-selling to the small business segmentâ.
The bank said in the past fiscal year: “FNB Business’s SME bank lending has reached over R40 billion through simple, rated digital loans, with credit approval taking less than three minutes in many cases “.
Mike Vacy-Lyle, CEO of FNB Business, says: âBetter use of data, better understanding of the customer context, easier credit applications through scoring and digitization, as well as lower origination costs, led to better and deeper credit underwriting and faster turnaround times. This made borrowing from FNB Business a much better experience with better prices. “
Customer growth in its commercial segment (investment banking) was 11% over the year, this base having increased by 42% over the past five years. Normalized pre-tax income for his commercial transactional activity is up 17% (compared to 13% for his personal transactional activity).
The bank says it has seen “strong adoption of digital platforms” in the commercial segment, with increases of 25% and 37% respectively for active customers of online and active banking applications.
According to Vacy-Lyle: âThe continued digitization of the commercial banking experience, at scale, has improved efficiency and reduced banking costs. This scale advantage will be passed on to the customer through more affordable banking solutions like these. “
- This article was originally published on Moneyweb and is used here with permission